Separating Chairman and CEO: Importing Change from Norway

Norway provides an example of how to diversify boards without waiting for the "market" to effectuate change.  The country requires each board to consiste of at least 40% of each gender.  The experience is only in its early stages but appears to be functioning effectively.  In other words, requiring more women in the board room did not destroy Norwegian capitalism and may even have had some positive ramifications. 

Norges Bank Investment Management, a branch of the Norwegian central bank, among other things manages the Norwegian Government Pension Fund, a task that requires investment into the United States.  NBIM has taken upon itself to submit four shareholder proposals calling for the separation of chairman and CEO.  The targeted companies?  Harris Corporation, Clorox, Cardinal Health, and Parker Hannifin. 

At Clorox, the proposed amendment reads as follows:

• “Notwithstanding any other provision of these Bylaws, the Chairman of the Board shall be a Director who is independent from the Corporation. For purposes of this Bylaw, ‘independent’ has the meaning set forth in the New York Stock Exchange (“NYSE”) listing standards, unless the Corporation’s common stock ceases to be listed on the NYSE and is listed on another exchange, in which case such exchange’s definition of independence shall apply. If the Board of Directors determines that a Chairman of the Board who was independent at the time he or she was selected is no longer independent, the Board of Directors shall select a new Chairman of the Board who satisfies the requirements of this Bylaw within 60 days of such determination. Compliance with this Bylaw shall be excused if no Director who qualifies as independent is elected by the stockholders or if no Director who is independent is willing to serve as Chairman of the Board. This Bylaw shall apply prospectively, so as not to violate any contractual obligation of the Corporation in effect when this Bylaw was adopted.”

As NBIM explained:

• The board should be led by an independent Chairman and be in a position to make independent evaluations and decisions, hire management, set a remuneration policy that encourages good performance, provide strategic direction and have the support to take long-term views in the development of business strategies.  An independent Chairman is better able to oversee and give guidance to Corporation executives and help prevent conflict or the perception of conflict. This will in turn effectively strengthen the system of checks-and-balances within the corporate structure and protect stockholder value. 

In short, we have a branch of the Norwegian government trying to get US companies to conform to international practice.  We will provide additional thoughts in the next post.